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Will Blockchain Change the Music Industry?

November 15th, 2017

BlockChain Heading

This article originally appeared in the November/December 2017 issue of Canadian Musician magazine.

By Michael Raine

For those not immersed in the world of web-based technology, blockchain is a difficult thing to wrap your head around. It’s a nebulous concept that is simple on the surface but deeply complex in its details.

By way of comparison, for those older than 35, it’s like when you were introduced to the internet. Maybe you understood its uses – email, websites, etc. – but how it worked was likely difficult to grasp.

Blockchain is similar. Its applications are fairly simple to understand, but its inner workings require a great deal of study (and a PhD-level knowledge of cryptography). And as with the internet in the early-‘90s, those who ignore or dismiss blockchain are likely doing so to their own long-term detriment, while those who embrace it and help guide its adoption will benefit. The recorded music industry, unfortunately, has a history of ignoring and dismissing. We know how that story plays out, so what will the story arc look like this time? Blockchain is here, and a heated debate is underway about its potential uses and implications for the music industry.

Will it disrupt, or will it enrich? That depends on your perspective.

In the simplest terms, a blockchain is commonly described as a decentralized, secure, and unalterable digital ledger or database that keeps a permanent record of all transactions. On this ledger are “smart contracts,” which lay out the terms and costs of the transactions. Those smart contracts can be amended, but all previous versions remain on the blockchain. Because there is always a complete history of transactions and changes to the smart contract, the open blockchain technology is inherently more transparent and secure than the current system of closed contracts and databases.

A common analogy is to think of blockchains as Google documents, while traditional databases and ledgers are Microsoft Word documents. A Google document is open, meaning multiple people can access, view, and amend it at the same time and a record of changes is kept. A Word document is closed and its most recent version can only been seen and amended by one person at a time, with no record of changes kept. A common use of blockchains is for financial transactions using crypto-currencies, like bitcoin, which allow for two people to conduct a financial transaction that is secure and transparent without relying on intermediaries such as banks and governments.

(If you would like a deeper explanation of blockchain, there are countless articles and videos online that can help. For this article, we’re more concerned with blockchain’s possible applications than with how it works.)

Brian pull quote

Currently, there are generally two camps of blockchain proponents in the music industry. There are those who see blockchain as a way of facilitating more direct artist-to-consumer engagement and commerce, which diminishes the need for intermediaries like record labels, publishers, and performing rights organizations (PROs). Those are the disrupters. The other camp sees blockchain as a way of strengthening the traditional music industry by making it more efficient and transparent. By using smart contracts to cleanse data (i.e. improving metadata by eliminating the need for multiple closed databases that aren’t in sync), this second group wants to use blockchain to streamline music licensing, tracking, and royalty collection.

“Blockchain as a tool has certainly proven its durability and worth. There are lots of industries that are using blockchains. Blockchain for music, I’d say, is still untested and I think … the reason why we don’t have a lot of examples to point to as successful blockchain-based music companies or start-ups, is because people are trying to boil the ocean. They’re trying to ask too much of the current technology,” says George Howard, associate professor of music business/management at the Berklee School of Music and former president of Rykodisc, which was one of the largest indies in the 1980s and early-‘90s as the first CD-only record label. Howard also co-founded digital music distributor TuneCore and has written extensively about blockchain’s implications for the music industry for Forbes and other publications. He is part of the disrupter camp.

“If we want to utilize blockchains and the smart contract component of that, we need to have a limited number of if-then-that rules,” says Howard on the other reason he believes blockchain is currently not equipped to transform the music industry, though he’s still hopeful about its potential.

Essentially, he says, like all machines, blockchain is good at dealing with simple two-way, binary scenarios. The problem is that music rights are often not binary. It’s great if one person owns all the rights to a song – the music and composition – and wants to license that song to one other person. That’s a simple binary transaction and blockchain can accommodate that; however, most licensed songs involve multiple writers and performers, plus a label, publisher, and PRO. This makes the transaction too complicated for current blockchain technology, according to Howard. “Then under that you might have derivative work samples and you might have co-writes and all these other layers. While it’s super intriguing to try to use technology to solve the things like derivative works and co-writes, I tend to not believe the technology is sufficient to do that yet. That’s a problem and companies who are out there trying to do that, I think, are going to be frustrated for a while until the technology catches up.”

George HowardIf Howard is right, then the current best use for blockchain is for licencing independent music with just one rights holder (i.e. a writer/performer with no label or publishing deal or PRO affiliation). This allows for simple two-way transactions (i.e. artist to consumer). But this also creates an obvious market problem referred to as “network effect.” “Network effect is, simply put, the more users of a system, the more valuable the system is. So if you think of something like Craig’s List, people continue to use Craig’s List because other people use Craig’s List and so you get this marketplace. Creating marketplaces on platforms is very, very hard and it requires scale or mass,” explains Howard. “So the people that have the necessary rights who might be able to create that scaled marketplace are the ones who are least likely to enter into it, and by that I mean the major labels and the major publishers. They have yet to see, and I don’t think they will, a real compelling argument to say, ‘Sure, we will put our works up on a blockchain and essentially disintermediate ourselves.’”

So, essentially, there isn’t enough consumer demand for independent music to make a blockchain-based market viable. That is, unless consumers are incentivized to become more than passive listeners (like with Spotify) and become active promoters. Blockchain can help with this and it’s already taking shape.

“There is a role for the fan that’s related to blockchain and I think it’s one of organization and incentive,” says Howard. “The majority of people who love a band don’t want the band to say, ‘Hey, if you spread the word about my music, I’ll pay you.’ They want the band to say, ‘Hey, if you spread the word about my music, which you’re predisposed to do because you’re my fan, you will be rewarded with access and other things.’ So being able to trace that as a sort of customer relationship and management tool, and reward those power users or influencers… and create architecture for participation, blockchain is exceedingly well structured for that.”

There are a few examples of what Howard is referring to, including Imogen Heap’s Mycelia, PeerTracks, and Musiconomi. These services propose using blockchain to set up artist-to-consumer marketplaces that use crypto-currencies, or “tokens,” to incentivize listeners to become promoters.

“I don’t ever want to see guys and girls who are super talented and working really hard to then get down the road, like I am going to be 43 in January and have four kids, and go, ‘Ah, I’m not sure how I’m paying rent this month,’ even though you’re out doing shows for 2,000 to 4,000 people,” says Brian Byrne, former frontman of Canadian alt-rock band I Mother Earth, who co-founded Musiconomi as its artist ambassador. “There is something very wrong. Something is broken, and people can either choose to be arrogant about it and not admit these problems and pretend like they’re rock stars, or they can all stand up together and say, ‘There is something wrong and can we fix it?’”

Byrne and the Musiconomi team envision blockchain being that fix.

Musiconomi, which will begin rolling out features in 2018, is a blockchain-based marketplace where music fans are incentivized to take an active role in sharing and promoting the music of indie artists, and where artists – not labels, publishers, and PROs – have control over the distribution of revenues. A token (i.e. crypto-currency) called MCI “is designed to make this type of system possible. The new suite of features, including playlists, streaming radio, virtual merchandise/ticket storefronts, and others, will be available to token holders, enabling them to generate and earn rewards,” according to Musiconomi’s website. Fans acquire tokens through an exchange and then spend them (what’s referred to as “locking them up”) when they share the music on social media, blogs, etc. When people play the music, an artist-determined portion of the token revenue would go back to the user who referred the music. That is a simplified version of the incentive design.

“So the goal is that the artists will have a sort of dial that they can turn up [to increase the token portion shared] so they get more promotion, or they can turn it down once they feel like they can promote themselves at that point and have enough followers that the natural growth from their base would be good enough and they want to take a higher cut on what they’re getting per play,” says Dan Phifer, Musiconomi co-founder and chief technology officer.

Brian ByrneTo get songs legally into blockchain-based systems like Musiconomi, of course, requires the approval of all rights holders, which is why it can only work for unsigned artists, at least initially. “When I think about the big picture, I would love for everybody to be able to work together and use all the expertise and resources we can to make it a good, nice transition for everybody,” says Byrne thinking about a blockchain-based music industry. “But I don’t think that everybody is going to be along for the same ride. I’ve encountered this a lot when talking to some older musicians, some producers, some record label guys, and all across the board. I have some guys who get really, really upset with me where they don’t want to talk about it and then I have other people who are really interested and into it and I am already working with those people on developing a few projects. I am talking about people who are actually in the industry and have been there for a long time.”

And while he is not certain what role publishers and labels have in a blockchain-based music industry – it’s still early – Byrne says those intermediaries have expertise and provide valuable services that shouldn’t be discounted. But by giving artists more control over their careers, they have more power to not only do business with people who bring value, but also cut out those who don’t.

Musiconomi’s vision of an artist-controlled music industry is a noble one, but Byrne and Phifer concede that there are significant barriers to entry, not least of which is the network effect, as well as the public’s mistrust of crypto-currencies. Most people don’t understand what they are or how they work. Plus, most importantly, rent is paid in dollars and cents, not bitcoin or MCI.

Benji pull quote

But what if a blockchain-based music industry didn’t have to use crypto-currencies? And remember Howard’s comment that the major labels and publishers that “have the necessary rights who might be able to create that scaled marketplace are the ones who are least likely to enter into it?” What if labels, publishers, and PROs did buy into a blockchain-based solution? That, too, is taking shape, but the people behind this approach don’t want to disrupt the industry by casting aside these intermediaries; they want to empower them.

The Dot Blockchain Media (dotBC) initiative is headed by CEO Benji Rogers, the entrepreneur, technologist, and musician who founded PledgeMusic. With dotBC, Rogers’ team is developing a new blockchain-based file format, .BC, which would replace MP3 and WAV files as the industry’s digital standard. These .BC files would exist on a blockchain, could be uploaded to streaming services like Spotify, and work as both audio files and smart contracts with embedded information on rights holders and more. If adopted as the new standard, Rogers says dotBC could solve major issues, such as broken metadata, which dam up the revenue stream, thus making royalty collection more transparent and efficient. As well, the dotBC proposal doesn’t want to convert the industry to crypto-currency, but instead wants to use blockchain to improve the flow of dollars and cents.

But maybe the most important part of dotBC is the bridge it has built with the industry. dotBC has enlisted as funding and development partners the Canadian collecting society SOCAN, as well as the SOCAN-owned business-to-business music technology provider MediaNet. Additionally, dotBC has partnered with digital rights management platform Songtrust, and digital distributors CD Baby and FUGA. Rogers is also having conversations with a number of labels, including the majors. He says these rights holders could see their revenues grow exponentially by converting to a more efficient blockchain-based system that doesn’t use crypto-currency.

“The way I view it is, there’s a PRO that we’re in conversations with and they have to track over four billion lines of information and figure out which fraction of a penny goes to their artist or someone else’s artist. So can you imagine having a crypto economy in which you had to pay a mining fee to figure out four billion things a year?” offers Rogers. (A “mining fee” is charged to users for bitcoin transactions.) “Each one of those things could have 17 or 20 branches, right? So, what I think a lot of the blockchain enthusiasts on the crypto-currency side view as the future of money, that’s all true – it could all happen – but not if you can’t get the system operational in the first place because it’s too expensive to run.”

Dan PhiferThe theory goes, if everyone – PROs, publishers, labels, songwriters, streaming services, music supervisors, etc. – is working from the same blockchain, the smart contracts (i.e. .BCs) would greatly improve rights attribution. Transactions, whether it’s streaming royalties or sync licences, become more reliable because everyone is working from the same updated information. The industry would no longer be relying on separate closed databases of songs and rights with conflicting and/or incorrect information. And because smart contracts allow the more accurate data to be paired with other information, such as terms of use, the potential is there for things like sync licencing to become much more efficient.

So Rogers envisions a searchable blockchain-based database of .BC files (i.e. songs). Every file would contain all the rights information associated with the song.

Now imagine a music supervisor wants to license “Song A” for use in a TV show. Currently, they seek out the publisher and the label and get permission from each separately. Working on the dotBC blockchain, they could instead “ping” the file with a message that says, “I want to license ‘Song A’ for use in ‘TV Show B.’” Instantly, the necessary rights holders could grant, deny, or amend that request in the same .BC file on the blockchain. It streamlines the licensing process because permissions are handled in the same bundle.

Remember, Rogers adds, most people who want to use music for whatever purpose don’t understand the complicated web of rights that exists. “They just say, ‘I want to give money to this,’ and the music industry makes that really hard today because there is no public place to go look for it. Now imagine if, or when, we’ve got 63 million .BCs when SOCAN, MediaNet, Songtrust, FUGA, CD Baby, and all of our other partners come together and all those songs are in .BCs. Now imagine when you’re that person wanting to license that song, there is a little button that opens up and says, ‘In order to license, push this button,’ and you send a message within the song – using the dotBC free software – that says, ‘Hey, I would like to do a deal with you.’ The admin to that song – whether they be the publisher admins or the recording side – can message back and can come to an agreement.”

That is phase one for the dotBC project. Phase two, Rogers says, “is you can build into that song a whole bunch of pre-agreed licences. So this way, a game developer in Taipei, if she decides she wants to use your song in a game, she doesn’t have to call eight people to ask for permission. She sends a request of the song and the song can send an agreement back and that agreement is stored and tracked, and its changes are tracked in the blockchain and all those variables.”

Turning to streaming, currently, a service like Spotify receives closed digital music files, like MP3s, from labels and distributors. For royalty purposes, those digital files are only as good as the metadata (i.e. digital information) that travels with them. If that metadata is wrong or incomplete, it results in wrong or missing payments. To correct or update the metadata, the file needs to be pulled out, amended, and put back in the streaming service. By using dotBC’s envisioned blockchain, and .BCs instead of MP3s or WAVs, streaming services wouldn’t have to worry about missing or incorrect metadata. All rights holders would have permission to view, amend, and approve the information in the .BC file itself. This would ensure the rights information is up to date because everyone is working from the same file on the blockchain.

Benji Rogers“If I’m honest, this is the way in which the Spotify lawsuits disappear. Because if you look at the nature of these rights-side lawsuits, it’s, ‘We don’t know who the publishers are and so we can’t send them a notice of intent,’” says Rogers. In fact, Spotify appears to agree, having purchased blockchain start-up Mediachain Labs in August. “Well imagine if you sent a notice of intent to the song and the song had the publishers within it and you’re basically done,” Rogers continues. “That way, Spotify is saying, ‘Look, at this time on this date, this was the instruction we sent.’ So these things all become possible if you know who the humans are, how to contact them, and how to pay them. The other thing about the dotBC proposal was that it was designed to give the PROs, the labels, the publishers, and the people who are really invested, as well as individual songwriters and artists, the ability to control their destiny in a digital way.”

Though their approaches – disruption versus partnership – are at odds, Rogers and the folks at Musiconomi seem to share a genuine desire to make the industry fairer. And the one point they do agree on is that the inherent transparency and efficiency of blockchain will weed out the music industry’s least valuable actors. “Those who currently profit from a lack of transparency, slowing down, or the diminishment of payments to artists, will find that that becomes more difficult,” says Rogers. “But if they add value, they will make 10 times more money from the efficiencies in the system than they will from the lags in legacy. One of the predictions that I made is that we can basically get to a $100 billion business in about a year if we focused and deployed this at speed.” That is one hell of a bold prediction considering the music rights industry is currently valued at $25 billion, according to the director of economics at Spotify.

 

“He’s got it figured out I think,” says Jeff King, SOCAN’s chief operation officer, about Rogers and the dotBC proposal. “We’re involved in a couple initiatives, but Benji’s Dot Blockchain initiative is the one that we put the most funds and anonymous data into. We’re working with the Open Music Initiative (OMI), which is run by the Berklee School of Music [and George Howard is a part of] and we’ve been doing some work with IBM Watson on the blockchain that they’re trying to develop. But the one we really put most of our heart and soul into, and some engineering time on, has been [dotBC].”

Rogers credits SOCAN as being one of the most forward-looking organizations in the music industry. The Canadian society has made great strides over the last few years to modernize all facets of its business, from digital distribution and licencing by acquiring MediaNet and Audiam, to live performance reporting in its recent partnerships with Muzooka and Pioneer DJ.

Jeff King“I think some [music blockchain start-ups and developers] were looking to really pull out the intermediaries – the labels, publishers, the collecting societies like SOCAN… But the more you dig, the more you realize that the ability for blockchain to do that isn’t there. It’s more of an opportunity to make the pipes run better, but it is not necessarily a replacement for the pipes. That’s why we’re keenly interested in it. We see it as a way to improve the network,” says King. “But the idea of cutting out all the intermediaries? I don’t think that’s going to happen.”

The biggest reason blockchain, and the dotBC proposal specifically, appeals to SOCAN is its potential to ensure all music users have the correct information about a song. “It helps with the data cleansing and really the push/pull of updating data across a broad number of databases quickly. That’s the thing that appealed to us, and when we started talking to Benji and his engineers, that’s what they were focusing on,” says King.

After speaking with Rogers and King, Canadian Musician went back to Howard to see how he felt about dotBC’s more conciliatory approach with the established music industry. Though he calls Rogers “a dear friend who I love and respect,” he makes it clear they disagree on the approach to moving blockchain forward in the industry.

“For the most part, ‘partnering’ with incumbents in the music space has not worked out well,” Howard replied in an email. He says that labels have “consistently attempted to destroy/sandbag [new technologies], whether overtly or via ‘partnerships’ designed to imply they ‘tried’ the new tech, then sandbag it so they can say, ‘We tried…it failed,’ in order to send a signal to the market/venture funds that the new tech is untenable. This has occurred from piano rolls all the way through streaming, so why in the world would they treat blockchain, which is an existential threat, differently? You don’t cut the branch of the tree off upon which you sit.”

 

We’re in the very early days of blockchain in the music industry. The technology still has a long way to go, and it’ll likely take even longer to get the public – including musicians, fans, and those working in the industry – to comprehend its possibilities and why it’s worth adopting. And frankly, you may be left thinking, “What the hell did I just read?” Fair enough. In 1995, it wasn’t easy to explain or predict the evolution of the internet, either. But it’s the wide swath of possibilities that make blockchain both fascinating and important.

END

Michael Raine is the Senior Editor of Canadian Musician magazine.

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